Tags: Siegel | Dow | 15000 | 17000

Jeremy Siegel: Dow Will Top 15,000, Possibly 17,000, This Year

Friday, 01 Feb 2013 09:16 AM

By Dan Weil

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The Dow Jones Industrial Average has soared more than 6 percent so far in 2013, and renowned stock guru Jeremy Siegel, a finance professor at University of Pennsylvania, thinks the move has plenty of steam left.

He tells CNBC the Dow will definitely top 15,000 this year and perhaps 17,000.

That first level would represent an 8 percent rise from Thursday’s close of 13,861. The second level would represent a 23 percent increase.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

Siegel is undaunted by the 0.1 percent fourth-quarter decrease in gross domestic product reported Wednesday. “Yeah, it was a bad quarter, and yet we're getting I think 70 percent of S&P 500 firms beating their earnings estimates.”

He thinks the economy can grow 3 percent this year, above the consensus forecast of 2 percent. As a result, he expects earnings to rise 5 to 8 percent.

“I think we're going to get expanding multiples, which is going to send us well above Dow 15,000. … And I think 16,000 to 17,000 is a very strong possibility. This could be another double- digit year.”

The return of individual investors to the market will provide support, Siegel says. While stock mutual funds saw huge redemptions in December, they enjoyed a net inflow of $6.8 billion in the first three weeks of the year, according to Lipper.

“The public is just barely touching its toe in the market,” he says. The economy’s recovery, particularly housing will lift retail investors’ spirits, he explains.

“People are not afraid of opening up their envelopes for their 401(k) reports anymore. When we get some headlines that the markets have come back, you're going to see consumer spending.”

The outlook also is improving in Congress, with Democrats and Republicans able to reach agreement on a fiscal cliff deal and likely a debt-limit suspension too, Siegel says.

“The Republicans are a little bit more conciliatory. … I don't think we're going to have a shutdown of the government.”

And even if automatic spending cuts go through, strength in the housing market will more than compensate for that, he notes. With inflation and interest rates so low now, “I don't think even a percentage-point up on mortgage rates is going to kill this market.”

The average rate for a 30-year fixed mortgage was 3.53 percent in the week ended Thursday, the highest since September.

When it comes to housing starts, “we're still below 1 million housing starts a year,” Siegel says. “All the economists I talk to say the normal is 1.5 million.”

Yale University economist Robert Shiller, who has frequently played bear to Siegel’s bull over the years, begs to differ with him on housing.

There’s no evidence that its recovery will be lasting, he says. “The unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down,” Shiller writes in The New York Times.

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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